UK branch vs subsidiary

When expanding your business into the UK, you will have to decide whether to open a branch or subsidiary. There are benefits to each of these structures, so choosing the right one depends on your particular circumstances. We compare the branch vs subsidiary structures below to help you make a more informed decision.

Should you open a branch?

A branch company can be thought of as an extension of the parent company’s operations. The branch is a permanent establishment that is dependent on the parent company. As with any business structure, there are both advantages and disadvantages.

PROS

You can convert a branch into a limited company if required at a later stage

An unsuccessful branch may be closed without formal notice

CONS

Your parent company remains liable for all of the branch’s operations

The branch’s activities will be subject to UK Corporation Tax (currently 19%)

Unfortunately, most UK companies are less than enthusiastic about entering into contracts with companies that are based overseas, as they may be subject to foreign law

The parent company's annual financial statements are required to be filed at Company House.

Should you open a subsidiary?

Setting up a subsidiary company requires you to create a new UK limited company. It will be a separate legal entity from the parent company. Setting up a subsidiary can be tricky due to red tape, but the autonomy from the parent company definitely outweighs the initial administrative hassle.

PROS

A subsidiary is far more autonomous than a branch

The parent company’s assets cannot be used to settle debts incurred by the limited company

Furthermore, the parent company will not usually be held accountable for the actions or decisions of the subsidiary; this is often called "ring-fencing"

UK companies are far more willing to enter into contracts with subsidiaries as they are wholly governed by UK law

You will not have reconcile your subsidiary’s financial statements with those of the parent company

CONS

Unfortunately, UK company law has complex filing requirements and procedures

If you wish to close a subsidiary, it will take up to three months

An important note on tax

There are tax advantages to operating as a foreign branch, in that branch losses can usually be offset against the parent company profits. However, this requires filing of the parent company's accounts in the UK.

Tax law varies from country to country. It is vital that a company takes local advice on its home country’s tax position with regard to foreign business and the above issues. At the same time, you must fully understand your company’s UK tax position.

You receive other income that is not taxed at source - for example capital gains or dividends

Business relocation FAQ

These are some of the frequently asked questions we have received from those looking to set up a business in the UK.

1. How quickly can I set up my company’s UK bank account?

Opening a UK bank account can be troublesome. There are certain formalities to be met from a "know your client" and anti-money laundering perspective. As a chartered accountancy firm, we are also obliged to adhere to these procedures and regulations. Usually, the proofs obtained when we gather information to act on your behalf will also be acceptable to a banking provider.

We anticipate that the process of opening an account should take no more than two months from start to finish. However, we usually open a designated Managed Trust Account for you to use in the meantime.

2. Do I need to be a UK resident in order to setup a UK bank account?

You do not have to be a UK Resident in order to set up a UK bank account. To open a bank account as a non-resident, you will need proof of identity that has been notarised. There are strict requirements involving who can, and how they can, do this.

If there are no UK-based management or directors, you may be required to have a company secretary as part of the application process. In our experience, unless there is a suitable 'business case', opening a bank account can be a difficult and lengthy procedure.

3. What is UK Value Added Tax (VAT)?

UK VAT is similar to a US sales tax in that it is levied on sales (outputs). UK VAT incurred on purchases and expenses (inputs) is set off against output tax and only the net amount is paid to the government (i.e. tax on the value added). A trading entity must register for VAT if its turnover is expected to be more than £85,000 p.a.

In a start-up situation, or when trading as a branch operation and carrying out marketing activities only, there may be expenses but no sales. In this case a VAT-registered company will be able to reclaim the input tax from the government. The standard rate of VAT is currently 20% so the additional cost, if not reclaimed, can be significant.

4. What is National Insurance/NIC?

Contributors to National Insurance qualify for certain benefits, including State Pension. Anyone who is aged between 16 and state pension age – determined by what year you were born - may have a liability to pay National Insurance contributions.

You may be required to pay these contributions if you:

Work for an employer (an employed earner)

Are self-employed and make a profit

The class paid is dependent on your employment status, how much you earn and whether there are any gaps in your National Insurance record.

5. What is a company secretary in the UK?

Private limited companies are not obliged to appoint a company secretary unless the company's articles contain a reference to this position. Existing private limited companies may retain a company secretary if they wish, and newly established companies can opt to appoint one. If you're running a public limited company you must, by law, have a company secretary.

The company secretary usually acts as the chief administrative officer of the company, leaving the directors free to concentrate on running the business. The company secretary doesn't have to be a director but they do share some of the directors' legal responsibilities. However, ultimate responsibility for ensuring the company is properly administered remains with the directors.

One of our principals will take this role for the UK companies we act for. With our address as the registered office (legal, not trading) we combine the two roles and ensure that official documents from HMRC and Companies House, are received and dealt with in a timely and professional manner.

United Kingdom

Croydon

Australia

Melbourne

Sable International is a trading name of 1st Contact Money Limited (company number 07070528), registered in England and Wales. We are authorised and regulated by the Financial Conduct Authority in the UK (FCA no. 517570), the Financial Services Conduct Authority in South Africa (1st Contact Money [PTY] Ltd - FSP no. 41900) and hold an Australian Financial Services License issued by ASIC to deal in foreign exchange (1st Contact Group - AFS License number 335 126).